Xero Limited · ASX:XRO
Xero — FY2020 Earnings Presentation
36 slides from Xero's earnings presentation, May 14, 2020
Slide 1: Investor Briefing: Full year results to 31 March 2020
Investor Briefing Full year results to 31 March 2020 14 MAY 2020 Orenda Tribe | United States
Slide 2: Important notice
Important notice This presentation is given on behalf of Xero Limited (Xero) (ASX:XRO) (Company number NZ 183 0488, AU ARBN 160 661 183). Information in this presentation: • is for general information purposes only, and is not an offer or invitation for subscription or purchase of, or a recommendati
Slide 3: Agenda
Agenda Business update Steve Vamos CHIEF EXECUTIVE OFFICER Financial results Kirsty Godfrey-Billy CHIEF FINANCIAL OFFICER Strategy update Steve Vamos CHIEF EXECUTIVE OFFICER Outlook Q&A 3
Slide 4: Business update
Business update Steve Vamos CHIEF EXECUTIVE OFFICER Rush Hour Media | Hong Kong 4
Slide 5: How we're responding to COVID-19
How we’re responding to COVID-19 Supporting our Helping Prioritised people to ensure customers and product their safety and partners with development wellbeing immediate needs • Offices closed globally and • Xero Central as our main • Extending pilot access of all staff working from home customer su
Slide 6: The COVID-19 environment
The COVID-19 environment What are we seeing? What are we hearing? What are customers doing? Overall, Xero usage levels have remained Xero voice-of-customer surveys indicate Some actions small businesses are taking: relatively steady during 2020 calendar year, most have been significantly impacted by
Slide 7: Continued global growth drives FY20 results
Continued global growth drives FY20 results SUBSCRIBERS ARPU AMRR TOTAL LIFETIME VALUE 2.285m $29.93 $820.6m $5.5b + 467,000 YOY + 2% YOY (-1% in + 29% YOY (25% in + $1.2b YOY constant currency) constant currency) OPERATING REVENUE EBITDA NET PROFIT AFTER TAX FREE CASH FLOW $718.2m $137.7m $3.3m $27
Slide 8: Xero's global footprint
Xero’s global footprint FY20 Australia New Zealand United Kingdom North America Rest of World Subscribers 914k +26% 392k +12% 613k +32% 241k +24% 125k +51% Revenue $320m +23% $116m +19% $184m +54% $55m +25% $43m +43% >50% cloud adoption1 <20% cloud adoption1 1 Estimated adoption rates across English
Slide 9: Australia and New Zealand highlights
Australia and New Zealand highlights Australia New Zealand • Single Touch Payroll accelerated digitisation of payroll compliance • Continued positive ARPU trends driven by emphasis on additional platform solutions and product upsell • Enterprise partnership announced with RSM Australia, a leading na
Slide 10: International highlights
International highlights United Kingdom North America Rest of World • Making Tax Digital (MTD) continued to • Continued growth in estimated partner • Launch of e-invoicing by Singapore contribute to performance channel capacity to almost 1.5 million small Government from January 2020 a catalyst busi
Slide 11: Driving growth through the platform
Driving growth through the platform FY20 revenue FY20 revenue growth YOY composition 82% Group operating revenue $718.2m 30% Core accounting Group 33% operating 28% Platform revenues 1 revenue 19% growth WorkflowMax2 89% Non-recurring3 Core Platform Non- 7% accounting revenues1 WorkflowMax2 recurrin
Slide 12: Investing in great products, leveraging the ecosystem
Investing TAX Suggestion in great products, Code-free Integrated tax Better business Industry leveraging accounting prep and filing and cash flow insights recognition the Hubdoc bundled into all Business Edition plans Xero Tax launched at no extra cost through Partner Business Snapshot and Short-ter
Slide 13: Payments and access to capital
Payments and access to capital Receiving Paying bills Access to capital payments • Get paid by customers faster, • Bank agnostic solution in • Better ways to access capital and with more ways to pay the UK through TransferWise through ecosystem partners • Streamlining automatic • Automating bill pay
Slide 14: Financial results
Financial results Kirsty Godfrey-Billy CHIEF FINANCIAL OFFICER Bichule | South Africa 14
Slide 15: Managing COVID-19 financial risks
Managing COVID-19 financial risks General and administration Group cost Cost of revenue structure 12% 14% 31% Product design and development (gross) 43% Sales and marketing Scenario planning Focus on costs and capital allocation Rigorous stress testing of revenue, spending and investment Identificat
Slide 16: Strong top-line trends maintained with further free cash flow improvement
Strong top-line trends maintained with further free cash flow improvement Annualised monthly recurring revenue Free cash flow $1,000m $ 27.1m $30m +29% YOY $20m $750m $10m $500m $0m $-10m $250m $-20m $0m $-30m FY18 FY19 FY20 FY18 FY19 FY20 16
Slide 17: Total available liquid resources of $686 million
Total available Movement in net cash position liquid resources of $686 million FY19 FY20 YOY ($000s) ($000s) change ($000s) Cash and 121,527 108,027 (13,500) cash equivalents Positive free cash flow result in FY20 of $27.1m, equivalent to 3.8% of operating revenues Short-term deposits 336,819 428,05
Slide 18: 27% uplift in lifetime value
27% uplift in Total subscriber lifetime value (LTV) lifetime value > 1.1b $ added in 12 months Progress from March 2020 March 2019 $ 5.5b ARPU $29.93 Churn % 1.13% $ 4.4b Gross margin 85% LTV per subscriber $2,422 1%1 1LTV per subscriber growth in nominal terms. 0.6% decrease in constant currency te
Slide 19: Unit economics and track record of value creation
Unit economics Value of a Xero subscriber at 31 March 2020 and track record $2,500 $2,000 LTV/CAC of value creation $1,500 $1,000 5.8 LTV $2,422 $500 Compelling SaaS unit economics: CAC $0 $420 $-500 CAC months 14.0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7 Year 8 MRR churn 1.13% LTV/CAC 5.8
Slide 20: Contribution margins positive in both segments
Contribution Australia and New Zealand contribution margins positive $ 272m in both segments $300m $200m Australia and New Zealand contribution $100m improved 24% YOY, exceeding revenue growth of 22% YOY due to continued operating discipline FY18 FY19 FY20 and scale benefits $0m International full y
Slide 21: Financial performance
Financial FY19 FY20 YOY change performance ($000s) ($000s) (%) Total operating revenue 552,819 718,231 30% Gross profit 461,904 611,649 32% Operating revenue growth of 30% YOY (29% constant currency), driven primarily Gross margin 83.6% 85.2% +1.6pp by subscriber growth across all markets Sales & ma
Slide 22: Progress on scale and operating efficiency
Progress on scale and operating efficiency Gross margin CAC as % of revenue Product costs including opex 1 and capex as % of revenue 90% 50% 50% 85.2% 85% 31.4% 43.6% 45% 35% +1.6pp 80% -1.3pp +0.5pp 75% 40% 20% FY18 FY19 FY20 FY18 FY19 FY20 FY18 FY19 FY20 Both Australia and New Zealand and Sales an
Slide 23: Strategy update
Strategy update Steve Vamos CHIEF EXECUTIVE OFFICER Momentum Accounting | United States 23
Slide 24: Strategic trends
Strategic trends Adoption of cloud technologies Digitisation of tax and compliance Innovation in financial services Post COVID-19 small business economy 24
Slide 25: Strategy on a page
Strategy on a page Purpose Vision WHY WE EXIST Make life better for people in small business, To be the most insightful and trusted their advisors and communities around the world small business platform VALUES #Human #Challenge #Team #Ownership #Beautiful STRATEGIC Grow small Build for global scale
Slide 26: Areas of planned strategic investment
Areas of planned strategic investment STRATEGIC Grow small Build for global scale Drive cloud accounting PRIORITIES business platform and innovation Best-in-class cloud accounting Small business needs beyond Attract, inspire and retain for small business accounting and compliance world class talent
Slide 27: Social and environmental impact
Social and V I R O N M EN EN T environmental impact I T Y & I NC S L R US DIVE ION BUSINESS Business Support and Communities OUR P EO P L E S Launch of Xero Assistance Programme in New Zealand ITIE and partnership with Beyond Blue in Australia UN SU P M PO M Diversity & Inclusion RT C O Included in
Slide 28: Outlook
Outlook While Xero has performed strongly in FY20, trading in the early stages of FY21 has been impacted by the COVID-19 environment. The continued uncertainty surrounding COVID-19 means it would be speculative for us to say anything more at this time on its potential impact on our expected performa
Slide 29: Q&A
Q&A Sidone | United Kingdom 29
Slide 30: Appendix
Appendix Streamline Management | Australia 30
Slide 31: SaaS metrics summary
SaaS metrics summary ANZ International Group FY19 FY20 FY19 FY20 FY19 FY20 ARPU $30.66 $29.83 $27.21 $30.05 $29.25 $29.93 CAC months 9.4 9.7 18.3 18.1 13.6 14.0 MRR churn 0.85% 0.84% 1.55% 1.59% 1.10% 1.13% Subscribers 1,077,000 1,306,000 741,000 979,000 1,818,000 2,285,000 LTV per sub $3,075 $3,058
Slide 32: COVID-19: How we're helping – Xero Central
COVID-19: How we’re helping Case study – Xero Central Business continuity hub Customised with relevant content for user region Access to live webinars, guides and other resources on topics like latest government initiatives, managing cash flow, business continuity planning, running a business remote
Slide 33: COVID-19: How we're helping – Australia
COVID-19: How we’re helping Case study – Australia JobKeeper & Xero Payroll Employee eligibility calculator based on eligibility criteria and employee data within Xero Payroll Enrolment of employees directly with the ATO and pay runs incorporating JobKeeper payment top-up as a pay item within the al
Slide 34: Glossary
Glossary Subscribers Constant currency Liquid resources Subscriber means each unique subscription to a Xero- Constant currency comparisons for revenue are based on Liquid resources comprises cash and cash equivalents, offered product that is purchased by an accounting average exchange rates for the
Slide 35: Contact
Contact Toby Langley toby.langley@xero.com INVESTOR RELATIONS +61 450 223 995 Kate McLaughlin kate.mclaughlin@xero.com COMMUNICATIONS +64 27 533 4529 Wilson Farm | New Zealand 35
Slide 36: Beautiful business
Beautiful business xero.com/investors